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Decisions of the Superior Courts of New South Wales, 1788-1899

Johnson v. Bank of Australia (1844) NSW Sel Cas (Dowling) 425; [1844] NSWSupC 6

insolvency

Supreme Court of New South Wales

Dowling C.J., Stephen and Burton JJ, 15 July 1844

Source: Dowling, Select Cases New Series, Vol. 3, S.R.N.S.W. 2/3469, p. 19.

Where an insolvent was acquitted in two criminal prosecutions in respect of certain transactions; held that the Chief Commissioner of Insolvents was nevertheless entitled to refuse a Certificate to the insolvent on the ground that the transactions were not bona fide and for valuable consideration.*

The Chief Commissioner of Insolvent Estates refused on 30 April to grant a certificate to the insolvent, under the 7 Vic No. 19 (1843), s. 18. The insolvent made a petition of appeal to this Court filed on 1 May last against the Commissioner's decision, and came on for hearing on 5 May. The matter of the petition having been heard and debated on both sides by counsel, the Court reserved its decision. During the vacation the Judges, including his Honor Burton J., conferred together in the case and now their unanimous judgment was delivered.

Dowling C.J. It appears that the reason of the Chief Commissioner's refusal to grant the insolvent his certificate was that he had prior disposed of certain portions of his property to persons respectively named Thomas Clarke and Edward Ogg, otherwise than bona fide. The main ground for appealing against this decision was the allegation that the supposed offence for which the certificate was refused had been the subject of two criminal prosecutions in this Court against the insolvent, on both of which occasions he was acquitted. The juries found, by their verdicts respectively, that the sales by him to Thomas Clarke and Edward Ogg were bona fide .

If the matters of the two prosecutions referred to in the petition were identical, in form and in substance with the ground on which the Chief Commissioner had refused the certificate, most undoubtedly the allegation would have had great weight with the Court, from the deference which is justly due to the verdicts of juries. Should it turn out, however, that the criminal charges failed quite irrespectively of the question whether the insolvent was under all the circumstances of the transactions, and with reference to the intent and object of the Insolvent Debtors Act not entitled to his certificate, the Court could not be fettered by the naked finding of the juries upon the precise points raised for the consideration in the mode in which the criminal informations were framed.

Referring to the records of our Court, we find that the first information was filed in April 1843 against Gordon and Ogg, and contained four counts. The first charging a fraudulent alienation by the insolvent and acceptance by Ogg, of certain goods of the insolvent Mr Ogg knowing the alienation to have been fraudulently made against the Insolvency Act . The second charging a conspiracy to delay creditors by pretending to give promissory notes at long dates in satisfaction of a debt of £5,000 due from Ogg to Gordon. The third charging a like conspiracy for the same purpose, Ogg knowing that Gordon contemplated insolvency. The fourth charging a like conspiracy generally to defraud creditors without laying any overacts.

This information came on to be tried before Burton J., and on that occasion, the jury, under the learned Judge's direction in applying the evidence produced in support of the charge as laid in the first count, did come to the conclusion that the alienation of the goods by Gordon to Ogg was in fact bona fide and that there was no evidence that he Ogg took them knowing that the alienation was against the provisions of the Insolvent Act . The second count must have failed, if it was proved that Ogg really did give the notes at long dates to Gordon, the charge being that he pretended to give the notes for the purpose alleged. The third count must also have failed, for the like reason, and also unless Ogg was infected with the knowledge that Gordon contemplated insolvency, which was the gist of the offence, the charge would fail on that ground. The fourth was probably too general to be supported.

The verdict of the jury on that trial might therefore be perfectly consistent with a decision holding that notwithstanding the acquittal on the charges so made, the insolvent was not entitled to his certificate.

The second information was filed in July 1843 against Gordon and Clarke and contained the like number of counts founded on a different transaction but framed in the same manner as in the first information. Being tried before the Chief Justice the defendants were acquitted on the ground that the sale of the goods by Gordon to Clarke was bona fide. Consequently, as the information was framed the latent criminal intent, however suspicious in the circumstances, could not be inferred. This finding also would not affect the collateral question whether the insolvent could be righteously refused his certificate upon a review of the transactions which led to the two criminal prosecutions. It is not because an insolvent may not be successfully convicted of fraud and that therefore it follows as a matter of course that he is entitled to his certificate. In the administration of the Insolvent Debtors law this Court is bound to take a much more enlarged view of its intent and meaning.

One of the objects of the law is to give relief to persons, not because they are insolvent but because they have by sheer misfortune, and without fraud or dishonesty, become insolvent. The mere fact however of being able to keep clear of the penal clauses of the Act, is not the test by which the insolvent becomes entitled to the benefit of being freed from all old obligations, and enabled to set up in the world as a new man again. Rather the test is whether his insolvency has arisen from no fault of his own, that he is the victim of mere misfortune, and that in all his dealings he has in equity and good conscience acted as an honest man, and without suspicion of unworthy motive? To give a more narrow construction of the Act would defeat the salutary policy of it, as it affects the interests both of debtors and creditors. It is too late now to gainsay the soundness of the principle of our insolvent law, which seeks, on the one hand to protect honest debtors from the oppression of harsh creditors, and on the other to shield creditors from the frauds of dishonest debtors. Keeping this principle in view, it is the duty of those who are called upon to administer the law to follow out as far as possible its provisions consentaneously with the plain intentions of the legislature.

The Insolvent Act may not have made express provision for all possible cases which ought to deprive a man of his certificate. The utmost it could do was to define some of the most leading causes for denial, but, we apprehend it does not follow that because the conduct of an insolvent does not come within a defined category, that the Chief Commissioner is to be restrained in his judgment if upon a full and careful review of the case presented to him, he is satisfied that there is so much deceit in the insolvent, that in foro conscientia he is unworthy of the indulgence.

Section 18 of 7 Vic. No. 19 specifies a great number of grounds for refusing an insolvent his certificate, and amongst others, if he shall have "disposed of otherwise than bona fide and for a valuable consideration, any of his property". The learned Chief Commissioner in the brief notification presented to us of the grounds of his decision has merely certified as follows: - "with reference to the conduct of the insolvent respecting the disposal of his property to Clarke and Ogg I refuse the certificate on the ground mentioned in the Act, of having disposed of his property otherwise than bona fide". The words of the Act "and for a valuable consideration" have been dropt in this exposition of his reason for refusing the certificate whether intentionally or by accident, we are not in a condition to determine; but we apprehend that the omission of those words, which according to the language of the Act must be taken as the main ingredient of the ground for refusing the certificate, for disposing of the property otherwise than bona fide , cannot in this stage of the proceedings, if there be evidence of a want of valuable consideration, exclude us from looking at the case as if the Chief Commissioner had reported his decision in the express language of the Act.

The question then is whether the insolvent has disposed of his property to Clarke and Ogg respectively, "otherwise than bona fide and for 'a valuable consideration'?" In order to enter into a discussion about this case the Court has reviewed the whole of the proceedings before the Chief Commissioner together with some affidavits in support of the petition. From the mass of proofs it is to be collected that in January 1838 the insolvent arrived in this Colony (according to his own representation) with a capital consisting of goods, valued at £5,650 which together with £1,000 worth sent out afterwards, amounted to £6,650 with which he commenced business. He brought also £5,000 worth of goods belonging to other parties. He was concerned in Sydney in two trades, that of a linen draper and an ironmonger. He had a store at Parramatta , and another at Singleton, and was engaged in several other transactions. In January 1843 he became insolvent, being indebted to the amount of about £50,000 of which £30,000 were English debts, and the residue colonial with assets according to his own valuation, consisting of land, stock in trade and book debts to the amount of about £30,000 leaving a balance of about £20,000 deficiency.

A principal part of his assets listed in the schedule consisted of large debts owing from Thomas Clarke of Sydney and Edward Ogg of Singleton, and the trustees held their respective promissory notes payable at various dates from September 1843 to March 1846. The first of the notes being unpaid at maturity, the trustees compounded for these debts by taking ironmongery goods from Clarke valued by him at £6,000, which realized about £2,200 including several promissory notes not yet paid and by granting time to Ogg for the payment of £2,000 to be accepted in full of his debts amounting to £3,500, no part of which has yet been recovered.

The transaction with Thomas Clarke appears in the main particulars to have been this: Mr Clarke, who was the brother-in-law of the insolvent, arrived in this Colony in the latter end of 1840, bringing with him property to the amount of about £200 including household furniture, wearing apparel and everything he possessed in the world. Having no other capital, Gordon agreed in the latter end of 1841 to sell him his iron mongering business at the price of £9,500 consenting to take his promissory notes at £750 a month as Gordon required them. In December 1841, Clarke had given his notes to the amount of £3,500, the first of which for £750 was to fall due in April 1842. At this time Gordon was pressed for cash, and was driven to the necessity of raising money by accommodation paper. Before the sale of the business to Clarke, namely in November 1841, the latter drew a bill for Gordon's accommodation on a Mr Conrad Pile in England, for £3,000 having no other authority whatever for doing so, than another bill drawn in his favor by Gordon for the like amount on Mr D. Gordon the brother of the insolvent in England.

The bill so drawn on Pile was discounted at a colonial bank by Gordon and was returned dishonored and Gordon reluctantly took it up, paying re-exchange and expenses. In January 1842, Clarke (though not brought up to it) took to the ironmongery business without any previous inquiry into the profits of the trade or even taking stock and giving no other security than his own notes of hand. It was part of the agreement that if he could not take up his notes Gordon was to assist him. Accordingly Gordon had to take some of them up, with such bills and cash as Clarke took in the course of the trade. In April 1842, Clarke gave more bills in furtherance of the agreement to the amount of £3,000, which Gordon again assisted him to take up as they became due, towards which he furnished cash and bills taken in the business. In October 1842, they came for the first time to a settlement of accounts when Clarke gave his notes of hand to the amount of £5,000 all dated 26 October 1842 payable at long dates in different sums, the last of which would be due in March 1846. In his examination Gordon admitted that in the year 1842 he paid no less than £5,000 in interest on discounts alone. In January 1843, he became insolvent, up to which time he continued to reside in the same house with Clarke. Upon the insolvency of Gordon, Mr Clarke offered the business to the trustees on the same terms as he had bought off Gordon. The compromise already mentioned was ultimately entered into.

Upon this state of facts, can it be stated with any shew of reason, that the sale to Clarke was bona fide and for valuable consideration? In fact it may have been bona fide so as to evade the imputation of criminal intent but it was those mere forcuius badges about it, which negatives that sincerity of purpose, which should distinguish it from a real transaction. If it was made with the latent intention of benefiting himself or Clarke to the prejudice of his creditors it could not be said to be bona fide within the meaning of the Insolvent law.

What are the facts? Here is property estimated at £9,500 sold to a brother in law possessed of no real capital and without inquiry into the profits of the trade or even taking an inventory of stock and ascertaining the probability of being able to make good his engagements, he is willing to give, and the insolvent is content to receive his personal notes at long dates, on an understanding that if he can't take them up the insolvent will. Upon this footing their dealings go on until October 1842 (the brother-in-law still giving further notes and the insolvent assisting to take them up) when a balance of £5,000 is struck. Gordon being then on the eve of insolvency when notes of Clarke to that amount are taken, the payment of some of which is postponed till March 1846. It is true that the trustees have made the best terms they could with Clarke, by taking the remainder of the goods and canceling some of his notes. It is sworn that the goods, though valued at a light rate, turned out to be if not refuse stock yet of such old standing as to fetch very little when they came to be sold. Still the question is whether as respects Gordon this was in the common understanding of mankind, and the equitable construction which the insolvent law requires for a bona fide sale and for valuable consideration.

It may be that Gordon wished to give his brother in law the chance (though a poor man without capital) of struggling though his engagements by the retail sale of the goods; but has this really the intrinsic qualities of a bona fide transaction, when on the eve of insolvency, Gordon was content to take notes payable at such remote periods thereby delaying his own creditors, with all the risk in the mean time of the funds perhaps counted upon to meet them being otherwise appropriated? Viewing the case in this light we are forced to the painful conclusion that this was not a bona fide sale and for valuable consideration, but on the contrary a sale for the preservation of appearances, upon the chance of Clarke being able to meet his promissory notes due at distant dates and payable out of the ordinary course of mercantile dealings, Gordon being at the time the last notes were taken on the eve of insolvency.

We regret to be obliged to take the same view of the transaction with Mr Edward Ogg. It appears from the proceedings that from July to December 1839, this person was a salesman in Gordon's shop in Sydney at a salary of £80 a year. In January 1840, it was raised to £100 and in March in that year it was again raised to £150 and so continued until December 1840 when Gordon took him into partnership in his store at Singleton with no other capital than a balance of salary due to him of £60 or £70. He was to have a quarter of the profits for his services. This partnership continued until June 1842 when Gordon assumed to himself all the goods and partnership debts and on the 1 July 1842 sold the concern to Ogg at the price of £8,500; which was composed of outstanding debts worth £3,000, stock in trade worth £4,000 and a bonus of £1,500 for which he gave his notes of hand at long dates. Up to the end of 1842 Gordon took up almost all these notes at Ogg's request, he remitting as he could money and bills taken in the business. In this way notes to the amount of about £5,000 were retired leaving a balance of £3,500 for which in October 1842 Ogg had his notes payable at dates extending to March 1846. As already stated, the trustees on Gordon's insolvency entered into a compromise with Ogg for the settlement of those notes by giving him time for the payment of £2,000 to be accepted in full of the £3,500, but no part of which had been recovered at the time of the application for the certificate.

From these circumstances we can not but be persuaded that though the sale of the business to Ogg in July 1842 might in form be bona fide , yet in substance it was colorable to a person of no capital who had been in fact merely the servant of the insolvent and that there was really no bona fide valuable consideration given to Gordon, being himself secretly the beneficially interested party in the transaction, and Ogg no more than the ostensible owner to raise funds from the business to meet the notes, which were to be taken up by Gordon at maturity. The adoption of Clarke and Ogg by the trustees as debtors of Gordon from obligations arising out of these two transactions, cannot be considered as a purgation of the infirmity of the sales or as an acknowledgment of the legality of them within the meaning of the Insolvent Act . Doubtless the trustees have done the best they could for the benefit of the creditors, in saving as much as possible out of the wreck of the insolvent's estate; but their so acting does not conclude the question, which this Court has to decide, namely whether looking at the whole conduct of the insolvent in these transactions he is fairly entitled to his certificate.

If we could yield to topics of pity and compassion the fact that this unfortunate person has a large family depending upon him for support, would have its due weight; but the Court is not free to have its judgment influenced by such considerations. The interests of these pledges for correct conduct should be thought of, before they became involved in the consequences of the culpable improvidence and wild speculations by which the insolvent has been ruined.

Mr Gordon attributes his misfortunes in a great measure to the giving imprudent credit in what he calls "the good times". The Court, however, is led to the conclusion, that the real cause of his insolvency was the embarking into several different speculations at the same time carried on by paper credit and with the capital of his English and colonial creditors. A remarkable concession on his part demonstrates the little surprize he ought to put, that he has become a ruined man, namely, that for two years he never balanced his Sydney accounts and took no heed of the real state of his affairs. Is it to be wondered that he should be involved by the miserable system of business which has thus terminated? Were the Court to hold that this is a case in which a certificate ought to be granted to an insolvent, a just stigma would be brought upon the operation of the insolvent law of this Colony. As matter of history we know that its working has been assailed and the policy of it questioned as ominous to the community. Doubtless it has laid bare a vast deal of suspected insolvency and put a stop to a wild spirit of speculation without capital, and may have prevented credit being given to persons who ought never to have been trusted, but the principle of it has no tendency to check wholesome credit (which is admitted on all hands to be the soul of mercantile industry) to honest men possessed of capital and entitled to be trusted.

If the complaints against the law were traced to their source, it is not improbable that many of them may be attributed to the disappointment of a sordid hope of inordinate profits, by giving credit to men who ought never to be trusted, whilst creditors unfairly lay at the door of the insolvent law, those evils which are the result of overweening confidence and a relish for unnatural gains. Every day experience demonstrates that the main cause of the present prostration of the Colony may be as ailed to a reckless spirit of speculation upon paper credit, without regard to steady prudence, persevering industry and habits of economy which alone are the fostering guides to solid wealth. The tendency of the law has been to check this and bring the industry of the community within the bounds of fructifying energy.

In the spirit of the insolvent law, we are of opinion after a careful review of all the circumstances of this application that the insolvent Gordon has not made out a case for a certificate, and consequently the decision of the Chief Commissioner must be affirmed.

Published by the Division of Law, Macquarie University